Banks surge on report of record lending activity

Mainland bank shares rose across the board yesterday after a newspaper reported that lenders granted a record 1.2trillion yuan (HK$1.36 trillion) in loans last month.

Shares of Shenzhen Development Bank led the advance of 14 listed mainland banks, surging 9.12 per cent, while Industrial and Commercial Bank of China, the country's largest, gained 2.95 per cent in Shanghai and 1.82 per cent in Hong Kong.

State media reports of January's robust loan growth of 49 per cent year on year buoyed market sentiment, which had been damped by a negative outlook for the sector as the economy cooled, analysts said.

The China Securities Journal said yesterday lenders might have boosted lending significantly last month from 771.8 billion yuan in December and 476.9 billion yuan in November.

The newspaper said China Construction Bank Corp had extended more than 250 billion yuan in new lending as of Tuesday, while ICBC had granted 200 billion yuan.

Agricultural Bank of China and Bank of China both lent about 100 billion yuan in January.

Mainland banks tend to frontload their lending at the beginning of the year to show they have met their goals and to attract the best projects.

'The credit expansion could help offset the impact of shrinking net interest margins on profits and improve expectations of asset quality as measured by the non-performing loan ratio,' said Zhu Yan, an analyst at Citic Securities.

Beijing dropped lending quotas and unveiled a 4 trillion yuan stimulus package in November to shore up the economy against the global slowdown. Banks have responded by raising lending targets and focusing on railways, roads, power grids and other infrastructure projects that provide stable returns.

However, the loan boom might not be sustainable when the rush to cherry-pick government infrastructure projects ended in coming months, said Alistair Scarff, an analyst at Merrill Lynch.

Another concern is the potential risk of loan defaults from troubled companies amid the economic slowdown, according to Fitch Ratings.

A mainland banker said the central bank had been pushing lenders to lend at rates lower than the government's benchmark lending rates. This could be a step forward in the marketisation of interest rates but would put further pressure on lenders' margins.

Mainland banks posted a combined 67 per cent jump in profits on higher lending in the first half of last year. But six Hong Kong-listed lenders might report an average of 12 per cent drop in earnings this year, Citigroup Global Markets said in a report.

Credit boom

Total mainland bank lending last month as reported by state media, in yuan: 1.2tr yuan